HMRC has collected an extra £3.3bn in unpaid VAT over the last year, following investigations into SMEs. Such successful returns from these enquiries means more are likely to follow, and business owners should ensure that tax affairs are in order as a result.

The extra tax was collected by two newly created specialist HMRC teams- the Individuals & Small Business Compliance unit and the Wealthy & Mid-sized Business Compliance unit.

The underpaid tax will be the result of a combination of carelessness, genuine error or misunderstanding, as well as deliberate and calculated underpayment by a few rogue individual businesses.

Such errors, mistakes or underpayment by the minority inevitably mean, however, that all SMEs will now come under increased scrutiny, even if they have done nothing wrong.

Any probe by HMRC will be time-consuming and costly, and businesses need to ensure that they are prepared. Making sure records are up to date and in order is essential, as well as full cooperation with any HMRC staff involved in the enquiry.

Businesses are increasingly opting to take out insurance against the cost of an investigation, to protect themselves should the process stretch out over an extended period. Enquiries have been known to last for several weeks, or even months, resulting in considerable disruption and loss of revenue.

Underpayment of VAT has been identified as a key area of focus for the Revenue over coming months, following concerns surrounding avoidance by sellers on Amazon, Ebay and other online retail platforms. It has been estimated that VAT evasion in online shopping currently costs the economy up to £1.5bn per year.

It was also announced in the Spring Budget that the government will be taking steps to crack down on overseas traders who avoid paying tax on UK sales.

Underpayment of VAT is quite clearly on the Revenue’s radar and all SMEs should therefore be prepared for a focus on any activity in this area.

An unnecessary tax investigation is an unwelcome burden whatever industry or sector you work in.

Should such a situation occur, you may benefit from tax investigation fee protection which can help cover our accountancy fees to defend you.